A liberal approach

INDIRECT TAXES/ LAW OF THE LAND

Duty concession on medical equipment good policy.

The government's policy in respect of medical equipment in regard to indirect taxes such as customs and excise is quite liberal. It is based on an appreciation of the ground-level condition that health services need fiscal help not only in getting the equipment now in vogue, but also in getting the latest innovations cheaper.

Not charging full tax while importing them, or while making them locally, is generally the policy. For locally made medical equipment, while the general excise duty is 16% on all other commodities, there are nil rates of duty either in the tariff or by dint of exemptions for a large number and categories of equipment.

Those which enjoy such exemption from duty are parts and accessories of instruments and appliances used in medical, surgical, dental, or veterinary sciences, apparatus based on the use of x-rays or of alpha, beta or gamma radiations and parts specifically mentioned in very elaborate lists of such medical equipment.

The domestic industry has been traditionally arguing that the parts imported or locally manufactured should bear lower duty than the duty on the whole machine, so that it is profitable enough to manufacture complete machines by sourcing the parts from outside, be it a foreign country or even India. This argument is logically weak, on the ground that the value addition should make it profitable enough.

But in effect the value addition is not so high, mainly in view of a very limited market in India. Goods manufactured by noted and well-established firms in the Western countries have a worldwide market and so they can well operate on a low profit margin. That is not practicable for Indian companies, which will take time to develop a world market. In the meantime, a difference of duty, lower for parts and higher for complete equipment, is justified.

Some equipment, like orthopaedic, which is implanted or worn on the body, is fully exempted from duty. On the customs side the general duty is 10% but the duty for medical equipment is 7.5%. There are also many exemptions on listed goods, mainly parts of equipment imported for making complete machines.

There is also no duty for instruments and apparatus for physical or chemical analysis. The government is aware of the duty to be reduced fully or partially for new innovations in medical equipment. There is also the system for exempting medical equipment imported by government hospitals, which is quite justified, as it is one way of subsidising the public health.

While the above is the theory, the practical aspects also need some discussion, as there are very many cases where litigation has taken place mainly over the identification of the true nature of the equipment which is exempted.

While the government is liberal about the duty, in case there is any misuse of the concessions, the approach is to treat the cases as ordinary violation. And no special leniency is shown just because they are medical equipment. One big example is that of fully exempting the customs duty for any hospital which is willing to give free treatment at least for a certain percentage of patients.

So for the purpose of the equipment imported and used, the hospital had to work as a charitable organisation. It became a big issue and the case even went up to the Supreme Court and an expert committee had to be appointed to enquire into the misuse aspect. It was found that there was misuse of this concession by many hospitals.

So the conclusion is that the government's liberal approach of giving duty sconcessions for medical equipment, and the strict approach towards violations of conditions are on the right lines.

The writer is former member, Central Board of Excise & Customs